BTerrell Group Blog

This blog post originally appeared in the Nexonia blog. Nexonia gave us permission to publish it.

WHAT FRAUD CAN LOOK LIKE AND HOW TO PROTECT YOUR BUSINESS.

Corporate fraud is a lot like a leak in your kitchen sink. It comes in small drops, day after day; cents and dollars quietly going down the drain. It may not even be really noticeable at any given time, but by the end of the year it all adds up to quite a bit. In fact, it adds up to approximately 5% of a company’s total annual revenue, according to the Association of Certified Fraud Examiners. And this is occurring even though corporate expenses are the second most controlled assets (next to salaries).

For a number of reasons, it’s the small businesses that suffer most from fraud because they are less likely to have control over employee spending procedures. Without defining and enforcing policies, without using some form of automation for handling expenses, and by rarely analyzing their financial flows - small businesses leave themselves open to these little leaks. Forgetting a receipt here and there or rounding up an expense once in a while becomes easy to get away with, and it all accumulates.

This is not to say that larger corporations are in the clear. Even though many may be better equipped to process expense reports with the checks and balances in place, more than half claim poor spending oversight and policy compliance from their employees. Moreover, according to the Aberdeen Group, one in three companies admits that it simply lacks spending control. That statistic is just way too high.

Here are a few of the most frequent ways employees are known to cheat the system:

SUBMITTING PERSONAL EXPENSES AS CORPORATE

Was this meal a business lunch or was it hanging out with some friends? Was that a taxi to the airport to pick up an important client or a trip across town to visit family?

FAKE OR MISSING RECEIPTS

Many companies do not require receipts for expenses up to a certain amount (ie: $25, $50 or $75), so it may be tempting to submit $49.95 for an “extra” working dinner without any proof. There’s also the possibility of fake receipts with an extra zero tagged on, or even an entirely new amount (think about all those hand-written receipts from taxi drivers). Some employees will go so far as to “borrow” a receipt from a friend (or even directly from a dishonest provider) and claim services which they never received themselves.

MULTIPLE CLAIMS FOR THE SAME EXPENSE

Another case is credit card feeds and receipts being submitted separately for the same expense. Sometimes a single expense will be claimed a few times in different periods of time - weeks or even months after the service or the product was paid for.

EXAGGERATED EXPENSES

The services were delivered and the receipt is usually attached. But it looks like things are a bit more expensive than if the employees would have paid themselves... first class air ticket, luxury hotel room, the best restaurant in town, etc. Overtipping also falls under this category.

So what are you to do about all these (and other) possible types of fraud? What are the best practices for a company to protect their assets from misclaimed expenses? Based on an AirPlus survey, here is how corporations can effectively fight fraud:

CREATE CLEAR POLICIES AND APPROVAL PROCESSES

With emphasis on clear. The majority of companies (81%) require management approvals for business expenses and have a corporate spending policy in place.

REQUEST DOCUMENTATION AS PROOF

Two thirds of corporations (66%) require receipts for all expenses, no matter how small the amount is.

TRACK THE TRANSACTIONS

Most respondents (59%) said they require employees use corporate cards for all corporate expenses. This can easily separate personal expenses from company ones, keep expenses organized, and serve as additional proof.

AUDIT AND ANALYZE OFTEN

Over half of the companies surveyed (52%) conduct a regular audit of expenses. Making sure your company also does this not only gives you better insight about your spendings, but increases discipline and compliance from employees.

At Nexonia we believe that simplifying your expense reporting leads to a better compliance. By automating the entire expense reporting process, you can keep your company’s money under control. Receipts and credit card transactions are immediately aligned with the expense report and can easily be accessed and audited at any time. The approval process and corporate spending policies are automatically enforced and streamlined, eliminating mistakes and miscommunication. With the ability to submit an expense directly from their mobile device, your employees can do so immediately after paying for a meal or while travelling back from a business trip. This not only reduces the time involved in completing and processing these reports, but it creates a digital paper trail that can be reviewed at any time. And all this data can be analyzed in any number of ways via custom reports, allowing you to see precisely how your corporate expenses are being handled.

Now that you are armed with all this information, what will you do to plug the leaks in your corporate finances? How will you choose to protect your company from possible fraud?